BusinessDay contributing editor

Thursday is pay rise day for the nation's age pensioners, when they find out by how much more than the cost of living their incomes will rise. Woe betide any politician who dares question that, but it's a little unfortunate it's not going to be sustainable.

It's unquestionably hard getting by on the pension – unless perhaps you're an aged relative of Eddie Obeid – and the extra few per cent that will come from a pension increase matching tomorrow's male total average weekly earnings (MTAWE) rise won't make much difference.

With both sides of politics supporting the age pension rising by the highest of three measures (MTAWE, the CPI, the aged pensioner living cost index), at least pensioners won't go backwards and are most likely to continue to slowly gain.

The trouble is that we have a lot more pensioners coming to the party over the next couple of decades, so that extra per cent or so every six months will add up to many billions at a time when grey power will be substantially stronger.

Phasing in 67 as the qualifying age for the aged pension will help pay the bill, but the move is fighting against a looming explosion of pensionable types and medicine that will keep them alive longer.

The reality is that compulsory superannuation came along too late to save the vast majority of baby boomers from relying on the pension in their retirement. The average boomer will only have enough to take as a lump sum, pay off a few debts, buy a new car “to see me out”, party a little and “arrange their affairs” to make sure they receive as much pension as possible. It might not be very wise, but that's pretty much what the system encourages them to do.

And that is why most of the argy-bargy over whether or not to curtail some of the superannuation system's generosity for the relatively wealthy is a minor skirmish, not significant for the battle (retirement income policy) or the war (social welfare entitlements).

Our demographics – a dive in the proportion of working age people to non-working age, plus the high and rising costs of those non-workers with nearly one in every 20 Australians being older than 85 in 40 years' time – mean most boomers will age amid serious financial pressure on our social security safety net. (At least we won't have to worry about being lonely in our old age – there'll be heaps of us.)

That will make for more interesting politics of necessity down the track as grey power confronts middle-aged Gen Ys perhaps not liking the idea of paying a lot more tax than their parents did. Right now, politicians are still keen to promise pensioners more than future politicians might be able to afford, but, hey, that's not the current crop's problem.

An editorial in this week's edition of The Economist confronts that problem in its current UK form, under which a government that's pushing austerity across the board is going soft on aged pensioners, increasing some of its handouts for the old. The Economist editorialises:

“When budgets are tight, welfare needs to contract to its core function of guaranteeing a very basic standard of living for all. It should not be used to prevent wealthy old people from having to sell their homes. People feel there is something special about the family estate. But wealth is wealth, whether it sits on a street or in a bank, and houses have been a terrific generator of it over the past few decades. Why should taxpayers help those who have done well out of the housing market to keep most of their winnings? Far better to focus state spending on the impoverished young, who can be turned into productive members of society.

“As the rich world ages, people will have to work longer and bear more of the cost of their care. Fitch, a ratings agency, has served notice to many countries (including Britain) that an ageing population threatens their credit rating ...

“The old are a powerful voter block, feared by politicians. But they have enough experience of life to know that, in the end, the books must be balanced.”

They are lines that can be broadly applied to Australia in the years ahead, even though we don't have the government debt problems confronting most of the developed world. Taxing the family home or just including it above a reasonable level in the means test, is beyond the stomach of either side of Australian politics no matter how reasonable a policy it may be, given our unwillingness to consider increased taxation.

Like the British Conservative government, we can get tough with a few single parents of school-age children, but age pensioners are another kettle of voters.

We can continue to hide from the approaching major battle, concentrate on the skirmishes, the mud pie fights, and ignore what looms until it bites us hard – by which stage policy becomes much harder to implement and inevitably more brutal.

Michael Pascoe is a BusinessDay contributing editor.

120 comments

Perhaps this siutation would be more convincing if projections were shown to people. How much would the welfare bill be when all the baby-boomers are on the pension? Would there be a class of people working well past seventy affecting this trend?

There are pleny of people around the world living rich and full lives on an income much lower than the pension. Standards might fo down but people will find a way.

Commenter

Knee Jerk

Location

Sydney

Date and time

February 20, 2013, 1:15PM

I agree. We need to know exactly how much it will be to make any solid decisions. The aging of the population is one of the fear tactics politicians, and the powers that be like Fairfax, use to push population growth.

Funnily enough immigrants get old too, and dare I say most of them will need the pension, as it would be difficult to fund an adequate retirement on the minimum wage jobs many of them do, or by being the non working spouse of one of them.

Commenter

Neil

Date and time

February 20, 2013, 3:42PM

Another reason for Shorten & Labor to stop eyeying our super as their personal cash cow and to stop changing the super rules at their whim. We need to save & provide for our own futures & not be made dependent for handouts from an empty gov't purse.

Commenter

chrissy

Date and time

February 20, 2013, 4:48PM

No they won't "find a way"! Woollies and Coles will take all the pension rise and if Abbott gets in with his nutty Parental scheme, elderly pensioners will be paying for that at the checkout as well.

With Labor's scheme it is paid through taxation revenue and elderly pensioners are not liable for that cost as they fall below the $18000 threshold.

Abbott's scheme will impact heavily on cost of living for all pensioners and beneficiaries including single Mum's both at the checkout and the petrol pump.

Commenter

Nell

Location

Melbourne

Date and time

February 20, 2013, 5:02PM

Michael Pascoe's article is another one of those that attempt to make the case that, because the number of old people is going to grow, the money presently going to them has to be stretched further. He then makes the mindbogglingly incorrect statement that reining in the superannuation incentive for the rich is not the main game. In fact, huge sums can be found from reducing the incentives to put money in superannuation for people who already have enough to support themselves comfortably.

There is plenty of money to pay for the age pension, even as the number of old people grows. While Gina Rinehart has her billions and while bankers collect salaries resembling telephone numbers, there is more than enough to go around. We need to stop assuming that the current distribution of income and wealth is inviolable and decide instead that we need to promote social equality.

Michael Pascoe s a well paid journalist. Perhaps he can calculate the amount of tax he is saving from the concessions on his own super. I'd wager it's enough to fund a reasonable number of pensioners all on his own.

Commenter

Greg Platt

Location

Brunswick

Date and time

February 20, 2013, 9:36PM

And how sustainable are the $30-40 billion per year payments to negative gearers, private health insurance ,private schools , capital gains tax breaks, super offsets et cetera? Diesel rebates for miners?Pensioners need an increase just to keep up and this long overdue increase is needed, yet somehow it is acceptable to pay out $30-40 billion a year to those that don't need it and it is hardly called in to question.What distorted priorities The Age, sorry , Fairfax Media has.

Commenter

nkelly

Date and time

February 20, 2013, 11:16PM

Todays Governments have created a vicious circle. If super wasn't taxed (going in, growth while their and going out) we'd all have enough in retirement and not have to rely on the aged pension. Therefore, todays governments are collecting from us now, payment for our aged pension of tomorrow.

Commenter

Brett

Location

Brisbane

Date and time

February 20, 2013, 1:52PM

The whole question of super needs to be revisited.My contention is that super contributions should not be taxed, thereby allowing greater growth over time, but taxed coming out, after a generous tax free threshold is allowed.

Commenter

cruiseabout

Location

Broadbeach

Date and time

February 20, 2013, 4:04PM

There are considerable tax concessions on super already. You saying there should be more?

I hope I never get to be someone who focuses only on what more the government can do for them and why it should.

BTW I am a boomer who pays a lot into super.

Commenter

Alex

Date and time

February 20, 2013, 6:09PM

" The whole question of super needs to be revisited. My contention is that super contributions should not be taxed, thereby allowing greater growth over time, but taxed coming out, after a generous tax free threshold is allowed."

In theory, good idea. It was Paul Keating's idea, too. Then he realised that his government was not going to get any of the money, so changed it so that 15% of the tax was applied as it was going in.

At least those on lower incomes no longer scandalously lose 15% of their hard earned which ends up in super when, if they'd had that income in their had, they'd have paid less.